This is part 2 of SCDigest editor Dan Gilmore’s interview with Dr. Eli Goldratt, father of the Theory of Constraints, and author of “The Goal” and several other influential books on business and supply chain topics. “The Goal,” first published in 1984, is a novel that tells the tale of plant manager Alex Rogo, whose factory is a disaster and on the verge of being shut. With the help of a Goldratt-like consultant named Jonah, he turns things around by focusing on eliminating a series of bottlenecks (constraints) that are barriers to efficiency and service.

.pdf of the full Goldratt interview, part 2

Part 1 of the Goldratt interview

Gilmore: You’ve said “inertia” is a big problem in many companies. What do you mean?

Goldratt: Inertia is related to the patterns of how a company does business or executes a function like supply chain. But when there is a paradigm shift, or the need for significant change, these patterns are what kill you. 

So you have to go back and re-examine the basic assumptions. The tough question is: How do you know what assumptions you have to re-examine when you are facing an intolerable compromise?

But most companies just accept the compromise, rather than realizing they just got the gift that can point to us the wrong assumptions and the wrong patterns. Instead of working to find the correct pattern that will remove the conflict, and by that generating a win-win solution, we still compromise. That’s a huge mistake.

So, we have things that are good in the normal course of things, patterns and inertia, in the case of paradigm shift, is killing us.

Dr. Eli Goldratt

Gilmore:  It seems to me that the Theory of Constraints has some strong parallels to concepts like Lean and Six Sigma. Right or wrong?

Goldratt:  Let’s put it this way. In almost every implementation of the Theory of Constraints, we also force in the concepts of Lean and Six Sigma. The techniques themselves are beautiful. What is lacking is the mechanism to use them. In other words, Lean and Six Sigma will never force you to examine the policies of top management.

And that’s why they have a limited effect. Once you have used Theory of Constraints at a higher level to really understand what you need to do, at a lower level these techniques are fantastic. But you need to know where to use them and where not.

For example, the U.S. Navy has an RFP last year for all its logistics operations, a huge undertaking. In the RFP, they said the umbrella for the operator must be Theory of Constraints, and underneath that Lean. That’s exactly what I am saying.

Gilmore: When you are working with companies, what is typically the “Aha” moment, when the light bulb finally goes off?

Goldratt: If you really want an answer to that, I am going to have to market myself. Let’s look at “The Goal.’ In that book, the consultant, Jonah, leads Alex Rogo step by step down the path, almost by the nose. I am actually sick of that approach.

That book focused at the plant level. My assumption was that if I showed top management the whole thing up front, they’d say “It’s unrealistic,” We’re different,” all the usual things, and they will not move.

Even at a more local level, it can be hard. If Jonah would have told Alex in “The Goal” what the performance of the factory really should be a year or so down the road, Alex would have fainted.

And this is the problem. You go into a company, you use Theory of Constraints to make progress, move someone one step then another, they get fat and happy again, and then they just want to stop. But you’ve just started!

So – this is the marketing part – I’ve started with a new thing called “Viable Vision,” where I am showing company execs the whole thing for the first four years. And again, I tell most of them that in four years they can have net profit equal to their current total sales.

Of course, the first reaction is “This is totally unrealistic,” but then we say back, “Give us the data, and we’ll show you how to do it.”  We show them how to do it, and then we take on the implementation plan.

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Article key words: Theory of Constraints, supply chain strategy, supply chain excellence